Transcripts For BLOOMBERG Best Of Bloomberg Technology 20170

BLOOMBERG Best Of Bloomberg Technology January 28, 2017

The first major tech ipo of 2017. First, a huge week for tech earnings. This of course in a week where the dow average marched beyond 20,000 for the first time. Lets kick things off with alphabet. Take a listen. You have to take a step back. Here is a company that has massive levels of growth and yet people are finding those little areas. The problem is always expectations. The ad click numbers are clearly a challenge for them. Whats good is we are seeing them spend money on some other pests that i think will pay off. In the short term, there is extra money being spent, but they have very interesting opportunities. Alphabet has to extend beyond the advertising business model. These bets will start to pay off. We are starting to see spending in those areas where we will see growth. Caroline im seeing cost per click falling 15 . They are still managing to lure in more people to buy those adverts. Conversion rates are still low on mobile devices, so therefore the advertisers that are marketing those businesses are less inclined to pay up for clicks on mobile devices. The bigger question is the click metric in general, how valuable clicks are overall. Caroline explain that. The Search Engine is googles cash cow. The default behavior for an ad on a Search Engine is to click on those links. In youtube, you are viewing an ad. That could be good for google, opening up a new range of verticals. The click metric will end up getting a lot of noise. Caroline we are just hearing from the ceo saying the key trends, youtube, cloud, and hardware. Lets dig in on the cloud and hardware. Cloud they say is their fastestgrowing area of business. They have tough competition. They do. Microsoft also showed big growth, but it is a large area with a lot of opportunity for everybody. This is a case of raise all boats kind of thing. We will see google continued to expand that cloud business, leveraging ai and machine learning. That offers them a way to differentiate from microsoft and amazon. Each one has their own special sauce, special flavor. On the other side, this is a company that is hardly dependent on one area. It does raise some concerns longterm. So lets look at what they are doing. They spent a lot of money advertising pixel. We have all seen the ads, nice piece of hardware. Google home looks like a nice piece of hardware. They have daydream on the Virtual Reality side. They will take a while, but they are laying a foundation to do some nice growth in hardware and Additional Services on top of that. Caroline back to the youtube element, do you think this could become the powerhouse going forward. When does it start to show its dominance . They dont really break it out for us. It is a huge opportunity. Where people get it wrong or diminish the opportunity is thinking of it as tv dollars moving through online video. It is a growing the pies scenario, because there are businesses where the owner has an iphone 7 and can create a quick video and promote that on youtube and facebook. That is an example of an advertiser who never would have ought a tv ad, so all those tv ads will likely move towards digital, but it opens a new set of demand because of lower friction and lower barrier to entry. Caroline that was adam burke and bob odonnell. Speaking of alphabet, the Company Ended its 12 year relationship with one of washingtons most prominent lobbying groups. The Podesta Group had longstanding ties to the Democratic Party and hillary clinton. This change coincides with googles bid to hire someone for conservative outreach, and of course as a Republican Administration takes the white house. Sap raised its targets for 2020, citing a surgeon customer purchasing. The updated outlook came out with the companys fourthquarter sales, which were in line with estimates. Sap is transitioning from software to online Cloud Computing tools. The ceo spoke with bloomberg tv about the company strengthened the u. S. Marketplace. Clearly any Enterprise Company operating in the Global Economy is almost always running sap, so we like to think our purpose in the United States will only get stronger because we can only help the new president and focus on growth. That is why you need mobile players like sap to be great partners, and we will be. Caroline still ahead, appdynamics was on track to be the first major u. S. Tech ipo, that was before cisco snapped it up this week. We speak with the cisco ceo later this hour. Another possible megadeal as verizon approaches charter about a possible tie up. All the details, head. This is bloomberg. Caroline and now to some big deal news of the week, verizon ceo has approached Liberty Media about a possible tie up with charter communications. A verizoncharter combo would create a giant, bolting the company to the number one spot of u. S. Internet providers. Here is some of the background behind this move. Verizon a combination of an charter would not be a merger. It would be a megamerger, and not the first one we have seen recently. Like at ts bid for time warner. Now valued at 103 billion dollars, this acquisition may charter the secondlargest cable operator in the u. S. , just behind comcast. Verizon is the number one mobile care and the number two telecommunications provider, but the company has been facing a slowdown. This proposed deal would bring together thousands of miles of fiberoptic cable at a time of soaring demand for faster broadband. The industry gets more saturated and consumers cut the cord. Caroline quite a bit of information to go through in this potential tie up. Joining us and has a neutral rating on verizon. Welcome to the show, walter. Verizon numbers werent looking to pretty in terms of earnings. With this type be helpful . The tie up with charter would not cure the ills of the wireless business. Competitors are offering unlimited plans, and verizon has resisted that probably because they have 100 million customers and it is unclear whether the network could handle that kind of usage. That is a section of the market, it is unclear how high quality charters assets are. It doesnt really sure of anything. It just adds a different business and one that generates its own free cash flow. Caroline we are starting to see the ranks of what the best tactic is for the future. Here we seem to see a deal that once the infrastructure, but youre saying infrastructure is not up to much. The ceo of verizons strategy was to go wireless, and all of a sudden you have an issue where wireless is not the only thing for them to do, so there seems to be pressure on the company in order to make a changing transaction for them. Alex sherman talk today about them looking at 10 companies. That makes a lot of sense to us. They have issues in the wireless business. There is a whole host of companies they are looking at, and there tends to be this anything goes mentality where you can proceed with any type of transaction at this point, right . Caroline maybe not an at ttimewarner one. What about the other 10 companies that verizon could be looking at . One company would make more sense if they want to fix their wireless business and her tmobiles ability to get capacity, then they should buy dish. If they want content, maybe they should look at disney. If they want to diversify the slowing business they have, maybe they should look at vodafone. There are so many different options that verizon could look at going forward. The fact they are talking to charter, i think it is interesting. It is not surprising given the challenges they face. If we are in an anything goes environment, why shouldnt they also be looking at charter. This is liberty saying to comcast why dont you take a look at us, and really all these deal start together some pace. Caroline so regulatory hurdles, fewer amid this new administration . Or is the land not clear yet . The land is not clear. Doj should have major issues with these printtmobile transaction, and yet the market thinks that transaction can get done. With our new chairman of the fcc, i think the perception is that there will not be as much problem with the transactions, using the power they have to evaluate these things based on the public interest, but the doj is a methodical organization, so we are skeptical that if sprint and tmobile tried it that they would be successful. If we are wrong and the market is right, why shouldnt comcast be looking at charter . Caroline back to earnings, and main story and tech this week. Cory johnson joined us with bob bowdon on to dig through the takeaways. The azure business continues to grow. There is no sign of that slowing down. There is a huge opportunity, amazon, google, and microsoft. A lot of interest there, and we are seeing each of these vendors trying to focus on adding interesting artificial intelligence, speech recognition capabilities, so that other developers can take advantage of this if theyre going to use microsofts cloud services, so we will see more exciting developments. The office 365 business is interesting because they successfully moved from this model where we used to pay for a copy of office to now paying for a subscription, and that has nice financial benefits. We are starting to see some opportunities from that as well. Interestingly enough, even the Windows Business did ok. Of course they are heavily involved with gaming, so they are nicely positioned as we move forward. Caroline what about the acquisition, linkedin, did we get any hints about how thats adding . They are very much separate businesses. Microsoft more than any company has screwed up merger after merger going back decades, so can this one be different . They hope so. They plan to keep this as a separately operated company. The results in the first quarter, but how much will it be in the future . With office 365, there is an interesting mix between some of the linkedin capabilities with office as you tie Contact Information from outlook and other things into linkedin. We will see what happens. Caroline what about intel . Intel is really interesting. With all the companies we are talking about today, we are talking about this seismic change in computing, moving from Companies Buying lots of equipment to borrowing equipment and doing it over the cloud, so intel tried to wrestle with that issue where they had this profitable business, pc contracting, server business profitable, trying to move into a lower margin environment. When i talk to the ceo, what he had to say to us about the pc market was interesting. Intel saw rising sales into a shrinking market with pcs, so we have a cautious view. They expect pcs to continue to contract, but at the same time, they think their datacenter business might be strong, so when they look at how it they can guide towards flat margins and growth that is still growing in a shrinking industry, that is by selling better stuff in the data centers and keeping the margins together on the other side. The average selling price will be better for all of their products as they bring new products for the data center business, then looks down market and at the same time looking at hargrove for lowmargin products. More lowmargin, which will hurt their highmargin business. Caroline that was editor at large cory johnson and bob odonnell. Coming up, chinas biggest internet giants are vying for the attention of smartphone users for the Lunar New Year holiday. We will take you inside the tencent headquarters in shenzhen for a closer look at mobile payment strategy. All episodes are now Live Streaming on twitter, check us out weekdays at 5 00 p. M. In new york, 2 00 p. M. In san francisco. This is bloomberg. Caroline it seems samsung isnt the only company with battery issues. Hp over recalled over 100,000 batteries. It is an expansion of the 41,000 recalled in june 2016. The reason for the recall is possible overheating that can pose fire and burn hazards. Hp said it will provide a free replacement for each eligible battery. The chinese Lunar New Year tradition of handing out red envelopes has entered the 21st century. Millions of people are expected to send gifts to digitally this year. According to tencent, users sent more than 8 billion in one day last year. Bloomberg News Reporter Tom Mackenzie went inside tencents headquarters in shenzhen. Chinese new year is a boon for mobile payment companies, thanks in part to this. Well over one billion mobile transactions are expected this year as people fire off virtual red envelopes via their phone. Valued at 32 million in 2012, chinas mobile Payment Market was worth 1. 8 trillion last year. Tencents wechat and alibabas affiliated alipay are the two biggest rivals in this space. Their absolute allow you to do everything from buying a latte to taking out a personal loan. It is all about getting an edge. In recent years we have seen many players emerging in the mobile Payment Market, including banks and other thirdparty payment platforms. The competition is so fierce that it is almost brutal. Alipay and wechat have come to dominate with 90 market share, and that has drawn the attention of regulators who are expected to ramp up controls this year. The peoples bank of china wants Companies Like ant financial to register. It is also developing its own crypto currency to be used in online transactions. We follow all guidelines, and as that adapts and will continue to adapt, we adjust our models to reflect with the regulations require. Chinas banks are feeding the pain. Lenders here lost about 22 billion in payment revenue to alipay and wechat in 2015. That disruption is not stopping at chinas borders. Ant financial is trying to capitalize on the 150 million chinese who travel abroad each year. It has also invested in indias paytm and is eyeing expansion elsewhere. We look closely at the u. S. , europe, and what is the right strategy there as well, so we have a global perspective and global ambitions and we will roll that out as we determine the right partners. Chinas mobile payment giants are on a roll, but succeeding abroad is likely to be the biggest challenge yet. Caroline bloomberg News Reporter Tom Mackenzie joins us live from beijing. Thank you for getting up early. You talked in the piece, you interviewed a lady who spoke about the brutal competition. Who are the Key Competitors to alipay and wechat . Tom there is a lot of bloodletting between alipay and wechat, and wechat has expanded its market share from 11 to 20 , whereas alipay has seen its market share falloff. You have the other competitors, apple pay, they launched. We also have huawei, they have their own payment system. Samsung, they have android. You have jd. Com with a jd finance, the Wealth Management side of things. In terms of what alipay and wechat are offering, they have an ecosystem, so it makes it easy to use their mobile Payment Systems to do these different things, whether managing wealth or buying flights to travel abroad. They have to take on that element of things. Apple has the brand strength, but they use these nfc codes instead of qr codes, so it will be a challenge for apple to carve out market share. Caroline you mentioned global expansion, india. What is happening there . Tom alipay have been leading the march, teaming up with banks in europe, stores in london. They have also teamed up in the u. S. , so alipay making a big push on this. It comes down to branding and Brand Recognition and can they take on apple pay in the u. S. Caroline that was bloomberg News Reporter Tom Mackenzie from shenzhen, china. Up next, appdynamics ipo was officially squashed. We will see what this means for pending tech ipos. Check us out on the radio. This is bloomberg. Ive spent my life planting a sizesix, nonslip shoe into that door. On this side, i want my customers to relax and enjoy themselves. But these days its phones before forks. They want wifi out here. But behind that door, i need a private connection for my business. Wifi pro from comcast business. Public wifi for your customers. Private wifi for your business. Strong and secure. Good for a door. And a network. Comcast business. Built for security. Built for business. Anything with a screen is a tv. Stream 130 live channels, plus 40,000 on demand tv shows and movies, all on the go. You can even download from your x1 dvr and watch it offline. Only xfinity gives you more to stream to any screen. Download the xfinity tv app today. Caroline welcome back to the best of Bloomberg Technology. I am caroline hyde. Cisco is making an acquisition, acquiring appdynamics for 3. 7 billion. Cisco snapped of the Software Maker before it planned to go public this week. Bloombergs daybreak American Team spoke to the ceo of cisco on the news. Yesterday was a great day for us. We had two great levers on how we drive innovation. In the morning, we launched cisco smart board, which will revolutionize meetings and business. One of the headlines is that it was one of the coolest products cisco has built. In the afternoon, we made the acquisition of appdynamics, a fantastic acquisition for us. In reality, what they do is they translate application performance into his news insights for the customer, and they do it across private and public cloud, so we think the synergy of what we see at the infrastructure level and they see at the application layer creates visibility that no other company in the industry can provide to customers. I was there yesterday. 15 minutes after we made the announcement, i address the employee base, and i think they are excited. I have a couple of questions about the deal itself. You paid a pretty high price, 3. 7 billion. The reports were the ipo would be Something Like half of that. Is it dilutive, the price right, and at what point does it become accretive . When we looked at the company, there were a few things we looked at. First, they are the best company in the space. Secondly,

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